It rarely pays to sell into a panic

(MarketWatch) That’s worth keeping in mind today as panic grips global stock markets.

Perhaps the closest recent domestic analogy to what Japan is going through right now is the 9-11 terrorist attacks on the World Trade Center and the Pentagon. Just as is the case with the Japanese stock market, Wall Street plunged on the day it eventually reopened following those attacks.

But the market quickly recovered.

Consider an investor who was unlucky enough to have invested in the stock market at the close on Sept. 10, 2001, the day before the attacks. Believe it or not, within just two months that investor would have been in the black.

Making this result even more striking: It came within the context of the 2000-2002 bear market and the associated bursting of the Internet bubble.

Even industries that were otherwise decimated by the 9-11 attacks, such as airlines, recovered smartly. Six months after the attacks, for example, the NYSE ARCA Airline Index was just 2.3% below where it close on Sept. 10, 2001, the day before those attacks—despite the decision of numerous travelers to never fly again.

You might object that it’s dangerous to draw investment conclusions from this one turn of events.

But the market’s behavior after 9-11 was right in line with historical precedent. Consider a study conducted by Ned Davis Research, the quantitative research firm. It identified what it considered to be the 28 worst political or economic crises over the six decades prior to the 9-11 attacks—beginning with the Fall of France in 1940 and Pearl Harbor in 1941.

In 19 of these 28 cases, according to the firm, the Dow Jones Industrial Average was higher six months after the crisis began. The average six-month DJIA gain following all 28 crises was 2.3%.

http://www.marketwatch.com/story/it-rarely-pays-to-sell-into-a-panic-2011-03-15